Use the information for the question(s)below.
Luther Industries has $5 million in excess cash and one million shares outstanding. Luther is considering investing the cash in one-year Treasury bonds that are currently paying 5% interest and then using the cash to pay a dividend next year. Alternatively, Luther can pay the cash out as a dividend immediately and the shareholders can invest in the Treasury bonds themselves. Assume that capital markets are perfect.
-If Luther invests the excess cash in Treasury bonds, then the dividend per share next year will be closest to:
A)$4.75.
B)$5.25.
C)$5.00.
D)$1.05.

Question

Quizplus · Accepted Answer

The Answer of Use the information for the question(s)below.
Luther Industries has $5 million in excess cash and one million shares outstanding. Luther is considering investing the cash in one-year Treasury bonds that are currently paying 5% interest and then using the cash to pay a dividend next year. Alternatively, Luther can pay the cash out as a dividend immediately and the shareholders can invest in the Treasury bonds themselves. Assume that capital markets are perfect.
-If Luther invests the excess cash in Treasury bonds, then the dividend per share next year will be closest to:
A)$4.75.
B)$5.25.
C)$5.00.
D)$1.05.

Use the Information for the Question(s)below